Commodities: bulls remain in control despite recent decline in price

Commodities remain on a bullish market despite declining from their recent highs. Copper price is down by about 12.81% since its record-high in May while lumber prices have dropped by 55.33% during the same period. In the agricultural sector, corn and soybean futures are down by 12.60% and 21.11% respectively since their recent high in mid-May.

In the new week, investors will be keen on earnings reports from key consumer goods’ companies such as Bed Bath & Beyond and General Mills, Inc. The financial data will offer a glimpse into the consumer spending trends. Besides, the OPEC+ meeting scheduled on Thursday will offer further guidance on crude oil prices and the coalition’s position on inflation.  

Reasons for the bullish bets

One of the key factors driving the bullish market for commodities is President Biden’s infrastructure bill. On Thursday, the US President announced the tentative deal of $1.2 trillion bipartisan infrastructure plan. Notably, the amount is significantly lower than the proposed $2.3 trillion spending package. However, its approval is set to boost prices of industrial commodities such as copper and silver. Investors are now keen on whether the bill will be approved by the US Senate.

Investors’ bullish bets on commodities further result from government spending. Countries across the world, including the US, China, and Europe, have released significant stimulus packages in an effort to revive their economies. The subsequent rise in demand for various consumer products has further fuelled commodity prices.

China as key risk to bullish bets

China remains the key risk for investors who have placed bullish bets on commodities. Notably, the Middle Kingdom is a top consumer of various products including corn, soybeans, and industrial metals. It purchases about 60% of the commodities worldwide. As the country’s economic recovery post-pandemic, coupled with the continued restocking for its growing hog herd, have pushed commodity prices up in the recent past. However, the Chinese government has heightened its efforts to tame the soaring prices.

In its recent move, the country announced its plans to release aluminum, zinc, and copper reserves. It intends to release the products in batches to the relevant firms through public auction. The government efforts have pushed copper price from an all-time high of $4.8900 in mid-May to its current level of $4.2550.